bne IntelliNews – Government says three-quarters of foreign companies in Russia are still working

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Three quarters (77.6%) of the 1,382 foreign companies registered in Russia are still in operation, according to Vyacheslav Volodin, speaker of the lower house of parliament, the State Duma, in a message on Telegram on August 9.

“Despite unprecedented pressure, blackmail and sanctions, 77.6% of 1,382 foreign companies have not closed in Russia,” he said.

Last week, Russian President Vladimir Putin issued a decree banning companies in the most important sectors from leaving. The presidential decree bars shareholders from “unfriendly” countries from exiting the financial sector and oil and energy companies until the end of the year. The decree will freeze the sale of Russian assets of energy companies Fortum and Enel in particular, reports Kommersant.

The sanctions policy has led to higher prices, inflation and an energy deficit, but foreign companies do not want to leave the Russian market because not only would this imply significant costs for them, but there is no more return prospects for them, says Volodin.

Some confusion remains about the status of many companies. The Yale Chief Executive Leadership Institute (Yale CELI) released a widely cited list of foreign company intentions and claimed that more than 1,000 were considering leaving voluntarily, but later amended its list to include five grades, including “F” for those who have no intention of leaving.

According to Yale’s F rating, a total of 293 of the 1,000 continue to conduct business as usual. Another 158 D-rated companies have suspended investment and development, but are operating normally. There are 171 C-rated businesses that are closing some aspects of their business, but maintaining others.

The largest group is Grade B where 501 companies have suspended all operations but retain the ability to restart operations if things return to normal. And finally, there are 310 Category A foreign companies that have effectively closed down and retired or are in the process of selling.

If one counts only class A companies as “gone”, Volodin’s claim that more than three quarters of Russian foreign companies are still working is correct, however, including both class A and B, 80% of Russian foreign companies can be considered as a party.

Another study by the KSE Institute paints an even darker picture. The institute found that a total of 2,407 companies it tracks, 782 were continuing operations as usual, 172 had just suspended investments, 298 were reducing operations, 716 had suspended operations, 393 said they withdrew from Russia, but only 46 had completed their exit.

Yale TFSA followed up its report on foreign companies with a study that claims the Russian economy is at a standstill and companies leaving were worth a total of 40% of GDP. In a deep dive, bne IntelliNews assessed the report and concluded that the departure of international companies would shrink the economy by 40% as most of their products and services will be taken over by local companies.

Leaving Russia caused headaches for everyone. The Russian organization Public Consumer Initiative sued the American Nike for failure to fulfill warranty obligations to customers, reports Izvestiya. Nike decided to withdraw completely from the Russian market at the end of June.

“As an importer and seller, Nike LLC and Nike Retail LLC are liable under the Consumer Rights Protection Act, including replacement of defective goods with new of the same brand, free disposal of defects in the goods and the return of money paid for the goods at the request and choice of a consumer,” the organization’s CEO Oleg Pavlov said in the lawsuit, adding that after Nike exited the market Russian, it discontinued warranty service.

The first hearing in the case is scheduled for August 18 at the Cheryomushkinsky District Court in Moscow.

Forbidden to go out

However, some international companies produce equipment and provide essential services that cannot be replaced, and the Kremlin has taken steps to prevent these from leaving, particularly in the energy sector.

The previously announced sale of the assets of Italian energy company Enel Russia has almost been completed, but is now in limbo, following Putin’s decree. The group hoped to sell its 56.43% stake to Russian oil major Lukoil and the Gazprombank-Freesia fund for 135 million euros, below market price. Enel Russia has been one of the most successful electricity companies in Russia and a pioneer in the development of green energy. It has three 5.6 GW state district power plants and two wind farms.

The sale of the production company Fortum, which belongs to the Finnish group Fortum, was blocked in July, writes Kommersant. At that time, Fortum had proposals from Gazprombank, AFK Sistema and Invest AG Alexander Abramov and Alexander Frolov, according to the publication, despite Fortum’s complex asset structure and difficult financial situation. The buyers even accepted Fortum’s demand for repayment of debt to the parent company for around 75 billion rubles ($1.1 billion).

The third Western energy giant with assets in Russia is Germany’s Uniper. Uniper’s largest shareholder is also Fortum, and its Unipro in Russia owns five 11 GW state district power plants. Uniper has talked about leaving Russia, but has not collected applications for Unipro assets, although senior management has negotiated with Gazprom Energoholding, Inter RAO and AFK Sistema, writes Kommersant.

The full list of “frozen” companies that are not allowed to sell their assets and leave Russia under Putin’s decree is to be released in the coming weeks, and it will include not only energy companies, but also banks. The restrictions were expected to affect Russian subsidiaries of foreign banks that had not yet been sold, led by Austria’s Raiffeisen and Italy’s Unicredit Bank.

The refusal of banks and energy companies to work will result in heavy fines for the companies, according to the executive order.

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